Practice Management

Expense Management Steps to Lessen IRS Audit Risk

Written by Ryan Corlett

There’s no getting around it, the experience of having the Internal Revenue service (IRS) forensically root through your company records can be stressful. No matter how scrupulous your business has been, there’s always the risk of something unpleasant being uncovered.

The good news is that an audit is something that will only occur if tax officials have reasonable grounds to suspect the legitimacy of the submissions relating to your company. They make that determination with the help of a sophisticated data analysis system.

When the IRS finds something that looks to be out of the norm, an agent is alerted and will decide whether an audit is required to investigate further. One area that is particularly liable to set alarm bells ringing is business expense reimbursements.

Four Strategies to Minimize Audit Risk

Here’s a look at four effective strategies for managing employee expenses that can help minimize the risks of triggering a visit from the IRS.

1) Operate an Accountable Plan

The most efficient way to handle business expense reimbursements is with an accountable plan. This is when you meet all the IRS requirements to record exact details of each business expense, along with supporting documentation such as receipts or bills.

A digital expense setup provides a simple and hassle-free way to collect, manage, and accurately report this information. It also provides you with the proof to show the IRS that all the requirements of an accountable plan have been met.

2) Eliminate Math Mistakes

Any kind of errors or math mix-ups are likely to raise IRS suspicion levels—no matter how innocent the mistakes might be. It’s a risk that increases whenever a business relies on paper-based ways of managing expenses.

A digital system removes the need to rely on manual processing, with the software automatically handling the bulk of the number crunching. One of the most common causes of IRS alerts is when human errors are made during data entry.

3) Ensure That Expenses Are Legitimate

One of the requirements of an accountable plan is that expenses are “ordinary”—in other words, common and accepted in your business sector. A digital system provides a powerful tool for rooting out those expense reports that aren’t legitimate.

One of the ways a digital system can do this is by providing users with on-screen policy warnings and reminders whenever they make an expense claim. Systems can also automatically alert finance teams whenever an expense report falls outside set limits.

4) Keep Track of Exact Mileage

The complexities of mileage claims can become a particularly hazardous area when it comes to IRS audits. But you can shield your company against any risks by using a digital expense system to track the exact route and distance of road journeys.

This is done via a smartphone app that integrates with Bing maps to record, with meter accuracy, the distances between start and end of journey zip codes. This removes the “fuzziness” that’s created when distances are reliant on employee guesstimates.

So, while switching to a digital system won’t make the experience of an IRS audit any less worrisome, it can help lessen the chances that an audit is something you’ll ever have to face.

And if it does happen, you’ll have all the data required to minimize the risks of auditors finding something nasty.


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About the author

Ryan Corlett

Ryan Corlett is the General Manager of webexpenses, a fast growing global expenses management software provider. With an extensive background in account management, Ryan joined webexpenses in 2015 to open up the Australian division. The growth in this region led to further expansion into North America. Ryan now oversees both the APAC and North American divisions focusing on the continued expansion of both markets while also being part of the senior leadership team globally. With offices in the UK, Australia, and North America, webexpenses software is used by over 800 organizations in 70 countries throughout the world.

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